Govt to bring reforms commission to rewrite fin sector laws

NEW DELHI: The Union Cabinet will soon take up for discussion a proposal to create the Financial Sector Legislative Reforms Commission, or FSLRC, to rewrite and clean up the financial sector laws of the country. "The proposal has been finalised...It could go to Cabinet in a week," said an official.

Several expert panels on financial sector regulation in the past, including the Raghuram Rajan Committee, the Percy Mistry Committee and the UK Sinha Committee, had emphasised the need to rewrite India's financial sector laws to bring them in line with the current needs.

Finance minister Pranab Mukherjee had, in his 2010 Budget, announced the government's intention to establish FSLRC to simplify and streamline the legal framework and possibly suggest a completely new regulatory structure for the sector.

FSLRC will be headed by former Supreme Court judge, Justice BN Srikrishna. The commission's mandate will be to examine inconsistencies and overlaps in financial sector laws and to work out a standard principle-based financial regulation.

It will also review the structured objectives of each of the financial sector regulators so that there is no overlap among supervisors when it comes to regulation of different products.

"The nature of financial products has changed over the years requiring more clarity in the way they are regulated to avoid disputes among the regulators," said another government official.

The recent public spat between the Securities and Exchange Board of India and the Insurance Regulatory and Development Authority over the regulation of unit-linked insurance products, or Ulips, is a case in point. The government had to intervene to resolve the issue of regulation of this hybrid product.

The financial sector laws in the country came into existence at different points in time. This has resulted in certain degree of overlap and a lack of clarity in the functions of various regulators.

"The terms of reference of the commission are based on suggestions made by several expert committees on financial sector regulation and finalised after consultations with regulators," the official said.

Some of legislation governing the country's financial sector, such as the RBI Act, are very old and a number of amendments to them over time have further increased their ambiguity and complexity.

For example, even after several amendments to the RBI Act, 1934, its preamble still mentions the move to create RBI as a temporary provision.